Suppressed inflation describes a situation in which, at existing wages and prices, the aggregate demands for current output and labour services exceed the corresponding aggregate supplies. Suppressed inflation is the opposite of suppressed deflation, in which aggregate supplies of output and labour exceed aggregate demands. Both suppressed inflation and suppressed deflation involve non-wage and non-price rationing. In suppressed inflation, purchases of goods and labour services are rationed. In suppressed deflation, sales are rationed. Suppressed inflation and suppressed deflation both result from the inability of wages and prices to adjust instantaneously, in response to shifts in aggregate demand or supply, to satisfy the conditions for general market clearing. This inability can result either from effective legal constraints-that is, the imposition of price and wage ceilings or floorsor from natural frictions in the workings of the market mechanism.3 However, whatever the cause of wage and price stickiness, the resulting failure of markets to clear has profound consequences for the determination of output and employment. In the case of suppressed deflation, standard macro-economic analysis has long recognized these consequences. In contrast, suppressed inflation, although empirically not a rare phenomenon, has been the subject of little systematic theoretical analysis. In addition, the standard macro-economic paradigm fails even to recognize the analogybetween suppressed inflation and suppressed deflation. A central aspect of the received theory of suppressed deflation is the demand multiplier. This theoretical construct was first discovered by Kahn [7] and expanded by Keynes [8] and quickly became part of conventional wisdom. Assume, starting from a position of general market clearing and full employment, an autonomous reduction in aggregate demand for current output.4 Maintaining full employment would require a fall in the price level and nominal wage rate, but prices and wages are sticky. The initial effect of the reduced demand will be the emergence of excess supply in the output market. This excess supply induces the representative firm to reduce output to what it can sell, which is less than what it desires to sell at current wages and prices, and to reduce its effective